This case study is about the cash outflow (Budget) of Rs. 240 Crores (Rs.2.4bn) of the 35 storied residential project in Mumbai (See article 3.1) having built up area of 2,10,000 sqft & carpet area of 1,25,730 sqft having timeline of 43 months.
Sharing herewith detailed cash outflow (148 items) as per project budget template (See article 2.5).
Highlights of Cash Outflow/Budget:
- Land cost is a major cost in Mumbai/Metro cities. (Value for location)
- Architects and consultants cost is around 1% ONLY, hence selection of the best and economical design team carries more weightage.
- Organization’s image will be helpful in reducing brokerage and consulting charges for marketing & sales.
- It’s about monitoring all activities but controlling Only few major activities (Structure, finishes, services, contingencies & Inflation) for enhanced profitability.
- Processes & systems adopted in preparation of budget helps in improving professionalism, (Transparency, Accountability, Responsibility & Accuracy % due to inputs from domain experts).
- Involvement of various teams while working on each subsection.
- What to monitor & Effective way to control each subsection.
- Evaluate the value engineering areas to increase profitability.
Important parameters for enhancing profitability:
- Team selection (Internal & External -Architects, Consultants & Contractors)
- Plot layout & development norms
- Design parameters
- Specifications as per market trends
- Soil & Groundwater conditions
- Project management team
- Monitoring and controlling by senior management
Preparation of detailed working of the project budget during the initial stage helps in monitoring and faster decision making for senior management to control variations, if any. It also helps to identify items for value engineering along with improving accuracy % in budget.
Process for preparing Budget:
Cost management team is solely responsible for preparation of the project budget. Sharing herewith how In each section the team interacts with specialist agencies (either internal or external) to give justice to each item.
Section I: Soft cost:
A. Architects and Consultants: Senior management, Internal design team, Project coordinator reviews project requirements and decides, which professional services will be utilized for the said project.
B. Finance and Legal: Liaisoning team for approval & additional cost for development, finance team for interest component on loan amount as well as other financial charges and business development or senior management for land details, and also teams from taxation, insurance, audit and legal.
C. Marketing & Sales: Marketing & Sales team for number of agencies, Channel partners and their fees or charges based on strategies also project coordinator & design team for sample/show apartment.
D. Project administration and overheads: Project coordinator, project manager & planning team along with the senior management team determines the execution methodology strategy to share with the costing team. For shared services from the head office, the senior management & finance team provides relevant data.
Section II. Hard Cost:
E. Site development/Preliminary works: Project coordinator Project Manager, project team and planning team.
F. Structural works & services: Design team, Project coordinator/ Manager, project team (planning, engineering and services) both at the head office & site.
G. External development: Project and head office team for civil works and services, Liaisoning team for infrastructure costs from authorities.
Monitoring Cash Outflow:
Responsibility is divided into two parts.
- Cost team and Project team: Will monitor each activity and its impact on the sub section’s total percentage. Alternatives to modify/improve performance will be discussed amongst respective team members and before implementation, it has to be informed to senior management. For example: Finance, legal, project expenses, monthly expenses.
- Senior management: Will monitor each sub section’s performance and their impact on total budget over the project duration. For example: Approval, marketing, structural, services, and major plants & equipment cost.
Controlling Cash Outflow:
Cost team and project team will identify the alternative ways to control expenses of particular activity and share it with senior management for discussion. For example: project administration expenses, preliminary works, contract conditions, payment timelines, credit limits.
Senior management will specially focus towards controlling the expenses by every possible means such as brainstorming, help of technology, innovation & value engineering. For example: Approval cost, brokerage/channel partners/consulting charges, consumption factors for major items like steel, cement along with control on rework charges and wastage factors. Only senior management will have authority to modify/control allocation of contingencies and inflation cost.
Sub-section wise inputs to control Cash Outflow.
A. Any additional requirements of consultants and design modifications should be addressed within provision of three activities only (Other consultants, contingencies and inflation).
B. Strict control on approval cost considering the importance of time, cashflow management to streamline interest cost.
C. Efforts to rely more on technology, digitization for marketing & sales should result into reduction in promotional, brokerage & consultancy charges.
D. Optimization of project resources (Team/plants & equipment/materials) should be controlled as per efficiency, effectiveness & timelines. Also important to allocate the exact cost of shared services from head office to the project budget, which varies based on the number of projects in the organization.
E. Preliminary cost for execution should be thoroughly discussed considering Site logistics along with all necessary infrastructure facilities over project duration.
F. Hard cost controlling is very critical from the point of value engineering inputs. Structure cost should be verified frequently to verify steel/concrete consumption based on design factors shared by consultants. For other items, actual consumption versus theoretical factors should be monitored regularly & any discrepancies should be discussed/controlled effectively to improve performance. Purchase/rental cost of materials and plants & equipment to be controlled as per market demand, credit limits. Wastage factors for each activity should be reviewed & stringent actions to be taken to address savings.
G. For most of the external development items. selection, pricing and service availability of major plant & equipment plays an important role in controlling maintenance cost over project life. It is important to note that contingency and inflation cost should be allotted a maximum percentage to cater to timelines and beautification of the project.
It is beneficial to control the repairing and rework cost to address various loopholes in processes & systems and also overall expenditure.
Lessons learnt after successful preparation, monitoring and controlling of detailed budget/cash outflow will enhance knowledge and confidence. The assumptions, design parameters, specifications, wastage factors, contingencies and inflation % will be more precise and accurate to cater to various project durations in future.
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Investor friendly project report
Case study of a 35 storied residential building in Mumbai